Compound Drugs Fleece TRICARE, Create Deep Budget Hole

30 Jul 2015

By Tom Philpott Dodgy companies peddling pricey compound pharmaceuticals have fleeced the TRICARE program so severely this year, before tougher screening procedures took effect May 1, that they are largely to blame for a $2 billion defense health budget hole Congress is scrambling to fill. In fiscal 2010, military outpatient pharmacy costs totaled $6.6 billion, with only $23 million spent on compound drugs. By fiscal 2014, outpatient pharmacy costs had risen to $7.7 billion but compound drugs costs soared to $515 million. In the first nine months of fiscal 2015, compound drug costs tripled again for TRICARE, to $1.7 billion, or more than 20 percent of the $8.2 billion TRICARE expects to spend on outpatient drugs the entire year. “It’s really unheard of to see this kind of a spike, and it threatens our program,” said Jon Rychalski, deputy assistant secretary of defense for health resources management and policy, in a phone interview Wednesday. “In April alone the compound pharmacy bill was about $500 million,” he added. “So we are very concerned with this year. And as we broke it down for the Congress, they have understood and they’re appalled.” Compound pharmacies combine more than one medication or ingredient to create drugs not available commercially. Doctors elect to prescribe them when their patients might benefit from a different kind or strength of drug, whether creams, ointments, capsules or pills. But compound drugs have been at the center of abusive marketing and pricing schemes. After the private sector health industry clamped down on these operations a few years back, they refocused on the military and TRICARE beneficiaries, officials said. Many retirees, it seems, got unsolicited calls asking if they had aches or pains and informing them of special drugs that would bring relief and that the TRICARE retail pharmacy benefit would cover. In just two years TRICARE’s average cost for a compound drug jumped from $192 to $2,595. “There were unscrupulous people out there taking advantage of this, heavily marketing in many different ways,” Rychalski said. Dr. Jonathan Woodson, assistant secretary of defense for health affairs, joined with the military surgeons general and director of the Defense Health Agency this month to send an extraordinary letter to the armed services and appropriations committees. It seeks swift approval of two earlier reprogramming requests and a new one to shift defense dollars between accounts and close a more than $2 billion funding gap “largely driven by the compound pharmaceutical costs and utilization.” While new screening rules for compound drugs “have successfully curbed the inappropriate and potentially fraudulent activity in this area,” the letter says, two other factors add to the budget shortfall: medical inflation and more beneficiaries using TRICARE than forecast. It warns of a “real risk of exhausting funds needed to pay private sector care costs in late July 2015” if reprogramming isn’t approved. Rychalski, however, gave assurances Wednesday that beneficiaries will see no “disruption to care through the TRICARE network or in the direct health care system.” A worst-case scenario, if Congress delays action on reprogramming until it returns from summer recess in September, is that TRICARE could be forced by mid-August to delay doctor reimbursements. “The situation we don’t want to find ourselves in is where a beneficiary receives care and a bill is presented [but] we’re short of funding to pay for it,” Rychalski said. With its first two reprogramming requests, the department seeks to use more than $500 million in unspent health care dollars. That could be money available due to delays in staff hiring or unspent contract dollars. For the third reprogramming, almost $900 million, the target is budget savings from lower fuel costs, also to be diverted to TRICARE to offset the cost of compound drugs as well as new, costly Hepatitis C treatments. Rychalski said if he sounds less alarmed than did the letter, give some credit to a hitch in TRICARE claim processing software last week. It forced the contractor rewrite code and delay paying about 50,000 claims, which bought more time for a health program running out of cash. He also noted that TRICARE is a $16 billion program with a host of large contracts -- for U.S. regions, overseas, Alaska, dental care and more. During the recent federal budget shutdown, budget officials saw how they could shift funds between accounts and dampen the impact on beneficiaries. “We put money on each contract and monitor it. How fast that goes down can be a function of demand, cost, usage and when the invoices are submitted for payment. It’s an inexact science although we knew that in the late-July-to mid-August timeframe we would probably run into a serious issue,” Rychalski said. That led to the reprogramming requests. All four defense committees, House and Senate authorizers and appropriators, “seem supportive,” he said. The House Appropriations Committee was first this week in clearing the largest reprogramming request. “My sense is Congress is going to come through with the reprogramming approvals and we’ll be okay…But there is the very real possibility, if something got held up and nothing was approved, that eventually we would run out of money to pay claims.” Congress should also know that $400 million of the shortfall reflects rising health costs unrelated to drugs, a harbinger perhaps that a long period of modest medical inflation is ending. If so, Rychalski warned, the House and Senate appropriations committees have added more risk to military health programs by voting to whack the health budget for fiscal 2016 by $1.4 billion and $786 million respectively, off the department’s budget request. “We are seeing what we believe are generally increasing health care costs, and we think that’s going to endure,” he said. So the deep cuts by appropriators “are really too great for us to be able to fully fund the defense health program…Based upon our current-year experience and trends we’re seeing, these reductions are really not sustainable.” VA BUDGET RELIEF – The House has voted to shift more than $3 billion from the Department of Veterans Affairs’ Choice Card fund to pay other community-based health care costs for veterans who can’t get timely care in VA facilities, a move sought by VA Secretary Bob McDonald. But Rep. Jeff Miller (R-Fla.), chairman of the House Veterans Affairs Committee, made clear his committee’s support of the move was to protect veterans, not please VA leaders who he said mismanaged their budget. To comment, write Military Update, P.O. Box 231111, Centreville, VA, 20120 or email milupdate@aol.com or twitter: @Military_Update